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Tax Planning for Small Businesses in Ontario

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Tax Planning for Small Businesses in Ontario

Explore effective tax planning strategies tailored for small businesses in Ontario to optimize tax savings and financial health.

Navigating the complexities of the Canadian tax system can be a daunting task for many business owners and entrepreneurs. Effective tax planning is crucial for small businesses to optimize their tax savings and ensure financial health.

In this blog post, we will explore several tax planning strategies tailored for small businesses in Ontario, helping you to leverage tax credits, understand eligible expenses, and much more.

Leverage Tax Credits

Tax credits are a valuable tool for reducing your business’s tax bill. The Canadian government offers various tax credits designed to encourage small businesses to invest in growth, innovation, and sustainability. Familiarizing yourself with the tax credits available can significantly reduce your payable taxes. Some examples include:

Know Your Eligible Expenses

Maximizing your claim on eligible business expenses is a straightforward way to reduce your taxable income. Small businesses in Ontario can deduct a variety of expenses incurred in the process of earning business income, including office supplies, advertising, rent, wages, and more. It’s essential to keep meticulous records of all business-related expenses to support your claims during tax season.

You can find the list of eligible expenses for small business here.

Take Advantage of Income Splitting

Income splitting is a strategy that involves distributing income among several family members to lower the overall tax burden. By employing family members in your business and paying them a reasonable salary for their work, you can distribute the business income in a way that minimizes the total taxes paid.


This strategy not only helps in tax savings but also supports family members by providing them with employment and income.

Claim non-Capital Losses

Non-capital losses occur when your business expenses exceed your business income. These losses can be applied to reduce taxable income in other years, allowing for strategic tax planning. In Canada, non-capital losses can be carried back three years or carried forward up to ten years, providing flexibility in managing your business’s tax obligations over time. Here’s a summary of the loss application rules.

Manage Your RRSP, TFSA and IPP Contributions

Contributing to a Registered Retirement Savings Plan (RRSP), a Tax-Free Savings Account (TFSA) our your individual pension plan (IPP) can be an effective tax planning strategy for small business owners. RRSP contributions reduce your taxable income, leading to immediate tax savings, while earnings in a TFSA are not taxed, even when withdrawn. Balancing contributions to both accounts can provide a mix of short-term tax relief and long-term tax-free growth.

Consider Incorporating Your Business

Incorporation offers several tax advantages for small businesses in Ontario. A corporation is taxed separately from its owners, often at a lower rate than individual tax rates. Additionally, incorporating can provide greater flexibility in tax planning and income distribution. However, the decision to incorporate should be made with careful consideration of your business’s specific needs and goals, possibly with the guidance of a tax professional.

Effective tax planning is key to maximizing tax savings and supporting the growth and sustainability of your small business in Ontario. By leveraging tax credits, understanding eligible expenses, utilizing income splitting, taking advantage of business use of home expenses, claiming non-capital losses, managing your RRSP and TFSA contributions, and considering the benefits of incorporation, you can navigate the Canadian tax system with greater ease and confidence.

Remember, while this guide provides a starting point, tax laws are complex and change frequently. Consulting with a tax professional, like those at Shandal CPA, can provide personalized advice tailored to your business’s unique situation, helping you to make informed decisions and optimize your tax planning strategy.

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